What is the Role of a Trustee?

There are several different estate planning tools that can be used to help ensure your wishes are carried out after your passing — or in the event of incapacity. A trust is a legal arrangement that allows a third party, called a trustee, to hold assets on behalf of a beneficiary. Trusts can be used to bypass the probate process, minimize estate taxes, and allow someone else to manage your property if you cannot do so on your own behalf because of illness or injury. When creating a trust, it’s crucial to understand what the role of a trustee encompasses so you can make an informed decision about who you would like to appoint. 

What is a Trustee in Estate Planning?

A trustee is a person or entity who manages the property or assets in a trust as outlined in the trust document. The trustee effectively acts as a fiduciary, meaning they must manage the trust’s assets in the best interests of the beneficiaries. A trustee is not to be confused with an executor, who manages and distributes the assets in a decedent’s estate. While one person can serve both the role of a trustee and an executor, they can also be separate individuals.   

Generally, there are three different types of trustees: 

• Individual trustee — The grantor may choose a family member, friend, or another person who they believe possesses the ability to perform the role of trustee.
• Independent trustee — An independent trustee is a trustee who has no personal interest in the trust and is not related to the trust grantor or any of the beneficiaries, such as a trust management company or investment advisor. This can help ensure impartiality in carrying out the terms of the trust.
• Institutional trustee — Many large banks and financial institutions have professionals who manage trusts for their clients. 

Regardless of the type of trustee you select to manage your trust, they still have the same responsibilities and duties.   

What is a Trustee’s Role?

The role of a trustee can be complex. While they are primarily responsible for administering the trust according to the terms set forth in the trust instrument, their role encompasses much more. They must communicate with the beneficiaries, prudently invest funds, distribute payments, and handle a wide range of other tasks. 

Specifically, the role of a trustee includes the following: 

• Managing the assets in the trust — A trustee is responsible for taking care of the trust’s property and safeguarding the assets from loss, damage, or theft.
• Keeping records of trust expenses — A trustee must keep detailed records of all money transferred into and out of the trust.
• Filing tax returns — A trustee must file the necessary tax returns in connection with the trust.
• Reporting to the beneficiaries — A trustee has a duty to keep the beneficiaries reasonably informed about the trust, its administration, assets, liabilities, and disbursements.
• Investing trust assets — A trustee is required to invest trust assets prudently, using reasonable care, skill, and caution.
• Distributing funds to the beneficiaries — A trustee must distribute the assets in the trust according to the terms of the trust document. The assets must be distributed fairly and in a timely manner. 

Importantly, a trustee has a fiduciary duty to prioritize the interests of the beneficiaries above their own and avoid conflicts of interest. In cases where there are multiple beneficiaries, the trustee must be impartial and avoid favoritism. If a trustee is negligent in carrying out their duties or fails to act in the best interests of the beneficiaries, they can be held personally liable for any losses suffered by the beneficiaries. 

How to Select a Trustee

If you are beginning the process of estate planning, you might be wondering how to select someone who can carry out the role of trustee for your trust. One of the first things to consider is what type of trustee would be best for your situation. While an individual trustee may understand your family dynamics and personal wishes, they may lack the necessary expertise in trust management or be inexperienced in handling financial matters. 

A professional trustee can be a good choice because they are well-versed in investment management and able to act impartially. However, they charge a fee for their services, which would reduce the funds that are available to the beneficiaries. They may also be bound by more stringent policies than a family member or friend who is appointed as trustee. 

If you will be choosing an individual to serve as trustee of your trust, it should be a person who you are confident will act ethically and respect your wishes. They should be a person who will be transparent, remain in communication with the beneficiaries, and have the time necessary to dedicate to the position. It can also be helpful for a trustee to have financial knowledge — or be able to hire a professional who can provide expert guidance. 

In addition, you might consider appointing co-trustees. This may be an option if you do not want to offend an adult child by choosing one over the other. You can also appoint a professional trustee along with an individual trustee if you wish a family member to act in the role while receiving guidance from a professional. 

Contact an Experienced Michigan Estate Planning Attorney

If you will be using a trust in your estate plan, it’s critical to understand what the role of a trustee entails. To learn more about trusts and how we can assist you with your estate planning matter, contact us today. Our team of attorneys is dedicated to guiding individuals and families through the estate planning process and offering the legal help they need.